City of Walla Walla adjusts salaries using &#8216;cost of labor'

The system, which is commonly used in the private sector, looks at what competitors are paying employees who perform the same services within the same competitive market region.

Walla Walla Union-Bulletin

Saturday, April 23, 2011

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WALLA WALLA - An across-the-board 7.1 percent salary increase this year for the city's department directors has some crying foul, especially after police, fire and other city employees gave up benefits and raises for the next two years to make up for budget shortfalls.

Records confirm the police chief, fire chief, parks and recreation director and support services director received increases of 7.1 percent for 2011.

Directors, however, were not the only city employees to receive significant raises, and not just for this year, City Manager Nabiel Shawa and Human Resource Manager Jennifer Seekamp said in a meeting with Union-Bulletin staff.

According to Shawa and Seekamp, the city switched to a new methodology for setting pay scales and market adjustments in 2010; that new method was based on cost of labor.

Traditionally, most public agencies base annual salary adjustments on cost of living, which is a measurement of various goods required to maintain a given lifestyle - such as gas, milk, utilities.

Cost of labor, on the other hand, looks at what competitors are paying employees who perform the same services within the same competitive market region, and it is commonly used in the private sector by employers who track what their competitors pay their employees, said labor analyst and practice leader James Stoeckmann of WorldatWork.

"You will want to pay more but you will want to pay near the average," Stoeckmann said is the general rule.

To facilitate the switch to a cost-of-labor methodology, in January 2009 the City Council approved an $80,000 compensation study conducted by Milliman, Inc.

Though Shawa wasn't working for the city at that time, the city manager defended the switch to cost of labor because that was what the city had promised it would do.

In 2009, while the Milliman study was being completed, and while city management negotiated a new collective bargaining agreement with more than 100 union employees, all salary adjustments were frozen until the new cost-of-labor study could reveal what the city was paying its employees when compared to the rest of the market.

When the study was finished later that year, it revealed the majority of city employees who were annually making $60,000 or more were paid less than the median average or 50 percentile mark.

In other words, the city was underpaying its top wage earners, and thus creating a situation that made it harder to retain and recruit skilled professionals.

"To recruit for mid-management we have a very difficult time," Shawa said.

So in 2010 the city increased salaries for a number of non-represented employees who were making below the median average; some of those employees, including directors, saw as much as a 5 percent increase as the city attempted to close the median-range gap.

Then in 2011 the city increased salaries for a number of non-represented employees who were still under the median average; that adjustment included four key directors, all of whom received 7.1 percent increases.

So how much were directors being underpaid according to the Milliman study?

The city's public library director came in at 9 percent over the median average, but that position has remained vacant for the last year because of budget constraints. In addition, the development services director has moved to the new city-county joint development agency.

The public works director and city manager were hired within the last two years, so their salaries were not reflected in the 2009 Milliman study.

How much of a salary increase did the four key directors receive?

The following is a comparison of "actual" monthly salaries paid to the four directors since 2007, followed by the change from the previous year in percentage, ending with the current maximum annual salary:

On the flip side, the Milliman study showed that a little less than half the employees making less than $60,000 annually were overpaid when compared to the median average.

Of all the 102 positions surveyed by Milliman, ranging from accountant to young peoples librarian, 58 were for position paid under $60,000 per year. Of those 58 positions, 26 were rated as paying more than 5 percent over the median average.

According to Shawa, the goal is to bring all salaries to 100 percent of the median average or 50 percentile. But the city will not cut wages to do this. Instead, Shawa said those employees will not get salary increases, and eventually they will move down to the 50 percentile as the market adjusts.

The city manager also said the goal is to move away from a system where salary increases are automatic, regardless of performance or what other professionals are making in the same field.

Instead, Shawa said he favors a system where employees are given goals each year, and their increases are based on how well they did to attain those goals. While no such system has been worked out, Shawa said the merit system could also work in reverse.

"If you don't have satisfactory work and you are not hitting your goals, I am taking money away," he said.